Daily analysis 14.06.2017

14.06.2017 12:00|Bartosz Grejner

The British currency was supported by speculation regarding a “softer Brexit”, however, today’s average earnings data greatly disappointed. The zloty was slightly weaker, but the declines against major currencies were small.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 2 p.m.: Consumer inflation index in May in the US (estimate: 2% YOY, previous: 2.2% YOY),
  • 2 p.m.: Retail sales in May in the US (estimate: 0.1% MOM, previous: 0.4% MOM).

A mixed start to the day for the pound

While investors awaited the afternoon US inflation data and Federal Reserve’s statement, the British currency was still in the spotlight. It gained relatively swiftly during the morning hours – the exchange rate against the dollar (GBP/USD) rose to 1.28. This was probably due to further speculation that the election result could ultimately be positive for the pound.

A loss of the majority in the Parliament by the Conservative Party could, in theory, mean a smaller chance for a “hard Brexit.” The current situation could prompt Theresa May to consult the Brexit plan with opposing parties. David Cameron and John Major, two former prime ministers from the Conservative Party cited by Bloomberg, urged Theresa May to such a solution that could lead towards a “softer Brexit.”

The pound’s appreciation was stopped short by worse than expected data from the British labour market. In a report from The Office for National Statistics (ONS), they said that the average wage increased in April by 2.1% year-over-year while a 2.4% increase was expected. The average wage, excluding bonuses, also disappointed – the 1.7% YOY growth was the lowest since January 2015. The consumer price index in April was 2.7% YOY and yesterday’s ONS data showed it had even grown to 2.9% YOY. As a result, Britons real wages have been becoming lower and lower, which could limit consumption spending and, ultimately, negatively impact the GDP growth.

After the publication of the average earnings data, the pound gave back all of the morning’s gains and dropped to 1.273 against the dollar. On the other hand, the US currency was relatively stable which isn’t a preview of how it could behave in the afternoon. At 2:30 pm, the Bureau of Labor Statistics (BLS) will publish data regarding consumer inflation (CPI) in May and at 8 pm, the Federal Reserve (Fed) will share a statement after a two-day meeting regarding the monetary policy. Hence, we should expect significantly increased volatility of the dollar, especially around the Fed’s publication.

Zloty in a marginally worse condition

Today, the Polish currency was slightly weaker around midday although the range of trading was fairly limited. The EUR/PLN pair rose to 4.20, while USD/PLN rose to 3.75. Zloty also lost to the Hungarian forint (around 0.1%). Investors could speculate that a potential increase in the US currency’s value could hurt zloty and decrease its value.

The chances for that, however, are fairly limited. Inflation pressure was subdued in recent months across most countries. The preferred inflation index by Fed PCE decreased to 1.5% YOY. Today, the aforementioned CPI index will be published, which will most likely show a further slowdown in price growth. In such conditions, today’s interest rate increase by the Fed will probably be a “dovish hike,” meaning that the Fed won’t strongly suggest another interest rate increase in 2017.

 


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